Case Study: Kroger and Fred Meyer
The purpose of this case study is to examine the steps involved in sourcing from overseas to be presented in the market for sale. The case study is based on the supply chain management process of Kroger and Fred Meyer who are sourcing lamps for back to school season from Asia. Time required for different steps in the sourcing product from Asia are estimated in the case study.
- What factors would you list that need to be evaluated in making a decision to source products overseas? Make a list of pros and cons, and explain what the pressures are that impel manufacturers and retailers to not source products domestically.
There are many factors that influence the decision of a retailer to source a product overseas. Following are few of them.
- Cost and quality of the Products: this is one of the fundamental factor that affects the profitability of the products. Companies look to source products overseas because they have the luxury of paying much lower in comparison to the domestic manufacturers. Low costs sometimes mean compromising the quality which is not a good practice in the long run.
- Logistics: Companies need to make an analysis of their logistic capabilities before ordering a product. They must know the exact amount of time that is required for the overseas manufacturer to deliver the product and the time required to make it available for sale. If a proper logistic system is not available, there could be discrepancies in the supply chain cycle that could result in huge loses.
- Business Law: Companies need to know the business laws of their own countries and the countries from which they are sourcing products. Neglecting these business laws can result in financial loses in the form of huge fines by the governments.
- Finances: Companies make thorough assessments of their financial condition before they can make a deal with any foreign manufacturer for goods or services. They also look into the details of what terms need to be negotiated so that any future financial conflicts can be avoided.
- Vendor Reliability: it is pertinent to deal with a reliable vender. Failing to do so might result in financial loses. It could also mean that the products ordered are not ready on time.
There are a variety of reasons that impel manufacturers to not source products domestically. The first is the cost of manufacturing in the home countries that is much higher than the overseas companies. This definitely affect the profits of companies. Second is that companies might be ethically bound to certain things like providing benefits to their human resource which can be avoided in the case of sourcing from overseas countries. Retailers have been criticized for overlooking the ill treatment of employs at their overseas business partners.
- Based on the information given, how long do you estimate it will take to import these lamps? Create a set of target dates for each step in this process that will enable these products to arrive in time for the planned advertising date and selling period.
Following are the estimated times in a best case scenario as discussed in the case study.
Identifying factories in Asia (Day 1 to Day 15): This process would need 30 days in my opinion.
Creation of Purchase Order (Day 14 to day 21): it would need around 7 days for Fred Meyer and Kroger buyer team to review the purchase order. It would require another 7 days for Bank of America to process the payment to the Asian manufacturer.
90 Days lead time promised by the manufacturer (day 21 to day 111): this is the minimum time committed by the manufacturer.
Transporting the Merchandize (day 111 to day 131): Shipments from the Pacific Rim to the West Coast can reach port in less than three weeks.
By looking at the above details, we can expect the total arrival time to be 131 days for the planned advertisement date.
- What areas of expertise do the various members of the product development team have? What are the possible communication issues that might arise between them?
The development team consists of the buyer, category manager and the product merchandizer. They closely collaborate in the process of deciding a specific product. The buyer and category manager browse the market by paying attention to catalog, newspapers and online advertisement to look for different designs and price range for the product they want to import. The product merchandisers are responsible to find and select an overseas source manufacturer.
The possible communication issue is that if the buyer and category manager do not collaborate properly with the product merchandizers, the product that needs to be sourced from the overseas will not be clearly defined and it would be hard to make a decision about a source manufacturer in the overseas.
- There are several opportunities for questionable ethical situations to arise in the importing of products. What do you think the weak points might be? Where in the process is there the potential for unethical actions to occur?
There are many ethical issues that can arise in the importing of products from overseas. Companies in the developed countries sometimes have a blind eye to these unethical practices that are performed by their third world suppliers. Voluntary code of conducts have been introduced so that the employs working at the third world countries can benefit from the profits that their companies make from their developed country partners (Barrientos and Smith, 2007).
Companies from the developed countries should ensure that their suppliers from overseas have been paying their workers decent wages and not abusing these workers. They also need to ethically bind themselves to influence their overseas suppliers to provide a safe environment to their workers. The amount of waste and its proper dumping is another issues that needs to be addressed when it comes to dealing with a third world supplier.
Barrientos, S., & Smith, S. (2007). Do workers benefit from ethical trade? Assessing codes of labour practice in global production systems. Third World Quarterly, 28(4), 713-729.